Donovan Lindhorst was a roofing contractor. He got in trouble with the union for using non-union workers and for not accurately reporting his workers' time or appropriately funding their benefits. That was a bad idea because the union filed an involuntary bankruptcy petition against him. No. 07-34117, Donovan Louis Lindhorst (Bankr. Ore. 2007).
During the run-up to his bankruptcy, he withdrew money from his accounts in the form of cash, cashier's checks or checks payable to cash in an amount exceeding $800,000. However, when he filed his schedules and statement of financial affairs, he neglected to mention the money that he had transferred to his son, his wife and his wife's trust and the vehicles, real estate, cash and gold and silver coins that he still owned. He testified that his schedules and statements were true and correct at his creditors' meeting and on the first day of his Rule 2004 exam. On the second day of the exam, he refused to answer any additional questions.
The alert and diligent trustee secured an ex parte order to search the debtor's property. Here is just a sample of what they found:
As of February 25, 2010, the Trustee had recovered assets totaling $643,022.31 and had cash on hand of $283,591.81. The U.S. Trustee filed an action objecting to the Debtor's discharge. The Debtor agreed to waive his discharge.
The U.S. Attorney obtained a five count indictment against Lindhorst. No. 3:09-cr-00303, United States v. Donovan Lindhorst (D. Ore. 2009). On August 23, 2010, he agreed to plead guilty to two counts. As part of his plea agreement, he had to write in his own handwriting that he was guilty of the two counts.
He is now subject to a five year prison sentence, supervised release after completion of his sentence, a $250,000 fine and restitution.
Anyone thinking about pursuing a similar scheme should keep this in mind. Assets leave a paper trail. Just because you withdraw the money from your account and give it to your wife and son or hide it in a safe does not mean that it doesn't exist.
Don't do it. You can get caught. You can lose your discharge. You can go to jail. Just like Donovan Lindhorst.
7 comments:
Good article Steve. It is always good to thoroughly explain the consequences of false schedules to a client.
Great blog. I have taken it and made it into something that I from now on will give to debtor clients in addition to the copies of the Bankruptcy Fraud statutes that I have included for years. I have added some warning language to it at the end:
The above is a true story. Listing and valuing your assets on your Statements and Schedules is very serious business in the bankruptcy process.
When in doubt about whether or not something might be an asset or be classified by anyone as a possible or potential asset, LIST IT! If it later is determined to not be an asset after all, at least you will have listed it and no one will be able to accuse you of having tried to hide it. NEVER leave ANYTHING out!
When you place a value on any asset, use a realistic, real world value; do not try to “low ball” the values. This also is true with the values that you list for your claimed exemptions. If you value an asset that you claim as exempt, for example, at $100.00 and it really is worth more like $1,000.00, the Trustee can demand that either you pay the difference to him for distribution to your creditors, or that the item be sold and HE takes the difference to be put into the “pot” for your creditors. So, be realistic and don’t try to sneak something by as not worth very much when it actually is worth much more. If you don’t know what something is worth, at least try to find a similar item in the newspaper classifieds or on E-Bay or a similar internet selling site, for example, and see what its selling for there. If it’s a car, look it up in the Blue Book or on a used car lot, or, take it to a national used car lot and ask them to give you an offer in writing for it. If you have items that clearly are valuable, like a valuable antique, painting or coin, get an appraisal!
NEVER try to “game the system” like Donovan Lindhorst did; you WILL be caught, and you WILL go to jail.
My purpose is not to scare you to death, but it IS to make you understand that filling out your Statements and Schedules is very serious business.
If you have any questions, ask. Remember, there are no “dumb” or “stupid” questions.
Steve,
For another example of jail time for hiding assets, see United States v. Cluck, 143 F.3d 174 (5th Cir. 1998). This was an attorney who filed chapter 7. If you do a Westlaw search, you will see some of the appeals from bankruptcy court orders. Apparently there were 5 to the Supreme Court and at least 25 to the 5th Circuit. There were more unreported appeals to district court. His conviction and sentence for bankruptcy fraud was also affirmed.
Very good article.yes consequences of false schedule are always bad.
thanks amigo! great post!
I’ve meant to post about something like this on my webpage and you gave me an idea. Cheers.
Just thought I would comment and say great theme, did you code it for yourself? Really looks excellent!
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